Mario Monti tipped to lead Italy after Berlusconi quits

ROME: Italy starts forming a new government on Sunday after the momentous resignation of Silvio Berlusconi, with economist Mario Monti tipped as the man to lead the country through its debt crisis.

President Giorgio Napolitano will hold talks with political parties from 0800 GMT before giving his mandate for the formation of a new cabinet that will have to move quickly to push through painful economic reforms.

The talks are expected to last until about 1700 GMT with investors pushing for a new government to be in place by Monday, in time for the opening of the markets, where Italy has been hit this week by a wave of panic.

The 86-year-old Napolitano, a former Italian Communist Party leader, holds a largely ceremonial role but has been a crucial behind-the-scenes negotiator in the current crisis, trying to avoid the creation of a political vacuum.

International leaders have warned Italy against holding early elections after Berlusconi's resignation, saying a prolonged political crisis in the eurozone's third largest economy could drag down the entire euro area.

Markets have already given their blessing to the nomination of 68-year-old former European Union commissioner Monti as prime minister, with borrowing costs easing from record highs and the stock market rallying as speculation intensified that he would be chosen.